EU Says Ukraine Must Reform Gas Sector

BRUSSELS, Belgium -- The European Union said Monday it will push Ukraine to reform its natural gas sector in return for an international loan package to help pay a multibillion dollar debt to Russia.

Ukraine and Russia started talks with international banks Monday, seeking some $4.2 billion to restock Ukraine's gas stores for next winter and help it pay for monthly gas imports from Russia.

An EU official said the EU and major international banks were looking at a much lower figure after a meeting with the state-owned gas companies of both countries. He spoke on condition of anonymity because negotiations are still ongoing.

Russia sends the gas it sells to Europe through pipelines that cross Ukraine and has cut off all supplies -- including gas intended to heat European homes and fuel power plants -- in previous disputes with Kiev.

Moscow recently warned that it could shut off supplies again if Kiev does not pay on time and in full.

In a statement, the EU's executive commission said it was seeking a solution that would guarantee uninterrupted supply to European consumers during the winter.

Europeans complain they are hostage to disputes between Russia and its neighbors, warning that this forces them to seek other sources and routes for the energy it imports. Millions of people went without gas during a January dispute between Russia and Ukraine.

"Further support to facilitate gas purchases would be conditional upon continuing reform of the gas sector," the EU said. It has long sought more transparent conditions on how gas is traded between Russia, Ukraine and others and better ways to resolve disputes.

Both Russia's Gazprom OAO and Ukraine's Naftogaz are owned by their governments, leading to charges that the trade is more about politics than commerce.

Ukraine may need help making its next monthly payment to Russia on July 7 but is also looking for a loan to refill storage tanks during the summer to use up in the winter. It says it had 19.3 billion cubic meters in early June and needs to bring that to 32 billion cubic meters.

A loan would come from the International Monetary Fund, the World Bank and two banks backed by European governments -- the European Investment Bank and the European Bank for Reconstruction and Development.

Ukraine has been badly hit by the global economic downturn, with its economy shrinking by 21 percent in the first quarter and its currency losing more than a third of its value against the dollar as exports dropped and investors fled emerging markets.

It has already been promised a $16.4 billion rescue package from the International Monetary Fund and must curb public spending in return.

Source: AP